Intermediate Macroeconomics

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Intermediate Macroeconomics. Intermediate ... Department of Economics, Stockholm University ... Economics – Theory and Policy, Global Edition, 9th Edition,.
Intermediate Macroeconomics

Intermediate Macroeconomics Introduction Roine Vestman Department of Economics, Stockholm University

Spring 2013

Intermediate Macroeconomics

Overview

• 10 lectures in total • 4 given by Roine Vestman (1st-3rd, 9th) • 5 given by Johan S¨ oderberg (4th-8th) • The last lecture is given by Lars Calmfors (10th) • 5 seminars given by Theodoros Rapanos, Carl-Johan

Rosenvinge, and Niels-Jakob Harbo Hansen

Intermediate Macroeconomics

Contact information: Teachers and Course Administrator

• Roine Vestman: Room A 942, Ph: 08-16 3045,

[email protected] • Johan S¨ oderberg: Room A 788, Ph: 08-16 7762,

[email protected] • Office hours: by appointment • Course administrator until Feb 1st: Lorenz Pirus (A 720,

[email protected])

Intermediate Macroeconomics

Contact information: Teaching Assistants

• Theodoros Rapanos, room A935, 08-674 7769,

[email protected] • Carl-Johan Rosenvinge, room A 269, 08-16 4710,

[email protected] • Niels-Jakob Harbo Hansen, room A 848, 08-16 3174,

[email protected]

Intermediate Macroeconomics

Lectures

• 10 lectures • Lecture notes will gradually become available for download on

the course webpage (Mondo) • Lecture 10: guest lecture by Professor Lars Calmfors on

the European sovereign debt crisis

Intermediate Macroeconomics

Seminars • 5 seminars • Seminars not mandatory. But passing the seminar series yields

credit on the final exam (10 percent of total score) • Answers to seminar questions to be handed in groupwise to the black mail box on Floor 7, no later than 9 am the day before each seminar • Please write your names, the TA’s name and the seminar group

• From seminar 2 and onwards you are required to work in

groups of 3-4 people • Exception: seminar 1 - but please try to form groups

immediately! • Physical presence required at 4 out of 5 seminars to qualify for

credit on exam

Intermediate Macroeconomics

Literature - text books

• Mankiw, N.G. Macroeconomics, International Edition, 8th

Edition, Worth Publishers, Chapters 3, 6-9, 14-18, 20 • 7th Edition of Mankiw works too: Chapters 3, 5-8, 13-17 +

Ch. 20 of 8e (copies distributed!) • Krugman, P.R, Obstfeld, M. and Melitz, M.J. International

Economics – Theory and Policy, Global Edition, 9th Edition, Chapters 14-18, 20

Intermediate Macroeconomics

Literature - other readings • EEAG (European Economic Advisory Group) Report on the

European Economy 2012, CESifo, Munich, Chapter 1-2 • Swedish Fiscal Policy, Report of the Swedish Fiscal Policy

Council 2010, Section 7.1.1, 7.1.2, 7.2 • Swedish Fiscal Policy, Report of the Swedish Fiscal Policy

Council 2011, Chapter 5 • Swedish Fiscal Policy, Report of the Swedish Fiscal Policy

Council 2012, Chapter 6 • Ljungqvist, L. and Sargent, T. J. (2007), How Sweden’s

unemployment became more like Europe’s, Section 1-3 and 6-7 • Board of Governors of the Federal Reserve System, Causes of

the Recent Financial and Economic Crisis, Statement by Ben S. Bernanke before the Financial Crisis Inquiry Commission, September 2, 2010

Intermediate Macroeconomics

Introduction

1. Models of the macroeconomy 2. Elements of macroeconomic models 3. Topics 4. Road map

Intermediate Macroeconomics

Models of the macroeconomy • Models: simplified versions of reality • Useful when describing important mechanisms • Once equilibrium is characterized we can conduct policy

experiments • Different models serve different purposes • Different time horizons • Emphasis on different elements of the economy (e.g. with/without unemployment, with/without stock market, with/without banks) • Impossible to incorporate all features in one model:

unsolvable, intractable

Intermediate Macroeconomics

Models I: agents • Models should be based on the behaviour of individual agents:

households and firms • Microfoundations as opposed to ad hoc relationships

• Other agents and institutions: • Financial sector, banks • Trade unions • Political lobbies (vested interest groups)

• General equilibrium is desirable: supply=demand in all

markets, no loose ends in the model • Open economies: ROW = Rest of the World • We typically take something as exogenously given (e.g. world interest rate, free supply of capital)

Intermediate Macroeconomics

Models II: agents’ objectives

• Agents have objectives: households maximize utility, firms

maximize profits etc • Behaviour at individual level =⇒ aggregate relationships

(supply and demand) • Solve for equilibrium

Intermediate Macroeconomics

Models III: equilibrium analysis

• Economic policy: government may try to influence the general

equilibrium by affecting the incentives of individual agents • Models from the 1970s and earlier were subject to the Lucas

critique: microfoundations needed • Government: Fiscal authority + Central bank • Fiscal policy: taxes, transfers, government consumption etc • Monetary policy: interest rates, money supply, exchange rates

Intermediate Macroeconomics

Topics

• The financial crisis, “the great recession” and the European

sovereign debt crisis • The crises have spurred many debates: • The role of stabilization policy? • Choice of monetary regime: EMU? Should central banks care

about asset prices? • Monitoring financial markets: macroprudence? • Oversight of EU banks through a banking union?

• Swedish economic policy: we’ll mainly focus on labor market

policies

Intermediate Macroeconomics

Road map

• Lectures 1-3: The economy in the long term (medium term) • Lectures 4-6: The small open economy over different horisons

(AA-DD model) • Lectures 7-8: Topics in macroeconomics • Lecture 9: Topics in macroeconomics, the financial crisis / the

great recession • Lecture 10: The European Sovereign Debt Crisis

Intermediate Macroeconomics

Plan of lectures I

1. National Income in the Open Economy Mankiw, Ch. 3, 6 (7e: Ch. 3, 5); EEAG (2012), Ch. 1 2. Economic Growth Mankiw, Ch. 3,8-9 (7e: Ch. 3, 7-8) 3. The Labor Market Mankiw, Ch. 7 (7e: Ch. 6); Ljungqvist and Sargent (2007), Sections 1-3 and 6-7; The Swedish Fiscal Policy Council (2010), Section 7.1.1, 7.1.2, 7.2; The Swedish Fiscal Policy Council (2012), Ch. 6

Intermediate Macroeconomics

Plan of lectures II

4. Interest Rates and Exchange Rates Krugman-Obstfeld-Melitz Ch. 14-15. 5. Flexible Exchange Rates and Stabilization Policy in a Small Open Economy Krugman-Obstfeld-Melitz Ch. 16-17. 6. Fixed Exchange Rates Krugman-Obstfeld-Melitz Ch. 17-18.

Intermediate Macroeconomics

Plan of lectures III 7. Optimal Currency Areas and the EMU Krugman-Obstfeld-Melitz, Ch. 20; EEAG (2012), Ch. 1-2. 8. Aggregate Supply, Expectations and Stabilization Policy Mankiw, Ch. 14-15 (7e, Ch. 13-14); The Swedish Fiscal Policy Council (2011), Ch. 3. 9. Forward-Looking Households, The Financial Crisis Mankiw, Ch. 16-18, 20 (7e: Ch. 15-17+8e, Ch. 20); The Swedish Fiscal Policy Council (2011), Ch. 5; Board of Governors of the Federal Reserve System (2010) 10. The European Sovereign Debt Crisis (by Lars Calmfors) Mankiw, Ch. 17-18 (7e: Ch. 16-17) Extra readings to be announced!